Small and medium enterprises (SMEs) are engines of economic development for creation of jobs and empowerment. Currently there are 48 million Smes operating in India employing around 40% of the country’s labor. A sustained and healthy growth for this sector is essential. The internet has emerged as a game changer for businesses across the world. The growing internet base with more than 343 million internet users, has a direct correlation to the growth of commerce in the country.

We are witnessing a new trend with SMEs taking the online route to establish themselves in the Indian market. They are using the internet to explore fresh business models based on the market demand which in turn, is gauged by leveraging the internet as a marketing/ analytics tool.

The internet offers tangible benefits to SMEs

Traditionally, SMEs in India are dependent on domestic trade. Access to the internet has opened up an opportunity for them to trade on a much larger scale – both nationally and globally. The web has enabled SMEs to make higher profits, enhance customer reach and improve employment opportunities. According to a 2015 SMEStreet Survey, 56% SMEs believed that the use of internet technologies is critical for business growth. High web SMEs in India grew at 19%, as compared to low web SMEs who registered a growth of 13%, over a three year sales cycle.  Further, SMEs who used the internet extensively (website, digital and social media channels) have shown to export approximately two times more the export value compared to SMEs who use the internet sparingly.

Adoption of Internet among Indian SMEs

SMEs have recognized the potential of having an online presence in enabling growth for their businesses. As the internet ecosystem develops and online trade improves, the online market will expand for SMEs that leverage internet technology for growth and sustenance. The internet transcends geographical boundaries and levels the playing field by enabling visibility and trade across buyers and sellers located in distant geographies. With online transactions having features such as rating systems, feedback mechanisms, blacklists, payment options and tools, security and trust certificates; the online ecosystem has built trust in the market.

In a highly competitive market, in order to keep their position intact and their businesses sustainable, SMEs need to improve access to new customer segments and reach customers across the world. The internet improves their competitiveness and provides businesses, a platform to achieve a truly global scale. About 85% SMEs who adopted the internet believe that it is a cost-effective medium to grow sales. SMEs who actively adopt the internet for business activities boast 51% higher revenues which results in 49% more profit and a 7% broader customer base as opposed to their offline counterparts.

Understanding adoption challenges

Recent years have seen a progressive change in the mind-set of SME business owners when it comes to internet adoption. Despite its high potential, a large number of Indian SMEs are still not ready to move away from traditional business models. This has been attributed to several adoption barriers.

Technological Cost

Some SMEs believe establishing an online presence is prohibitively expensive to implement and operationalize. This is based on the perception that technology adoption is capital intensive and the cost of maintenance and initial investment may have to be written off. However, SMEs today are leveraging digital platforms and models that offer an online presence establishment with very low investments that include a customized domain name, professional email address, basic website and round-the-clock technical support.

Lack of Awareness

A large number of SMEs in India are unaware of the potential benefits primarily due to lack of exposure to digital products and services and the internet ecosystem, as a whole. Other factors such as language barriers and assumed technological complexities also inhibit adoption. There needs to be a concerted, nationwide SME engagement program which defines the meaning and relevance of the internet, along with its benefits and impact stories.

Inadequate Financing

SMEs in India face a significant financial gap in terms of unavailability of desired loan collaterals, high interest costs, and lack of systemic credit rating facilities. Approximately 41% of SMEs in India do not have access to bank loans or other financial products leading to a financial gap of more than INR 2.93 trillion in the SME sector.

Training and Support

There are reservations held by SMEs regarding the visibly felt benefits of going online which can be tracked and attributed. While measures to increase awareness around an online presence and its usage can help, the SME community needs continued training programs and support to help change their current myopic view of technology.

Online Voice In India  – Way Ahead for Indian SMEs

The Indian Government and industry associations recognize the importance of the SME sector. Its growth and online enablement are key themes across policy reforms and many industry initiatives have been launched. The Technology Centre Framework is aimed at facilitating access to various transformative technologies for SMEs. The B2C marketplace, MSMEshopping.com is estimated to have 5000 suppliers. SMEcorner.com offers a financial platform that makes borrowing easier for SMEs. Other initiatives such as Digital India, are helping drive internet accessibility across the country.

Small businesses in India are already experimenting with innovative, online business models. Florence Clothing Company, an SME apparel retailer moved its business online to overcome slow growth and high operating costs in 2013. The Mumbai based company almost doubled its revenues between 2013 and 2014 because of online sales. In 2014, the company closed its brick and mortar stores to focus only on online growth, by selling through an online website.

In a country that is increasingly going online, there will have to be an equal opportunity creation for SMEs to help them tackle the challenges of going adoption. The internet provides vital commercial linkages from the marketing, sales and procurement standpoint, for SMEs. The increased access to suppliers and customers can help SMEs scale up their businesses at much lower levels of investments. However, SMEs need to make significant moves to go online and take advantages of the opportunities presented by the internet and online market.

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